Question

you have just deposited $8,000 into an account that promises to pay you an annual interest rate of 5.9% each year for the next 5 years. you will leave the money invested in the account and 15 years from today you jeex to have 19,400 in the account. what annual interest rate must you earn over the last 10 years to accomplish this goal?

Answer 1

amount of deposit today = $8.000 Future value required = $19.400 Term = 15 Years Interest rate = 5.9% for next 5 years and there after fixed interest rate for remaining 10 years Future value required = [Amount of deposit * (1 + 5.9%) 5]*(1+1)^10 $19.400 = [$8.000 * (1.059)5]*(1+1)^10 $19,400 = [$10,655.40073 ] *(1+1)^10 (1+110 = $19.400 / $10,655.40073 (1+1)^10 = 1.820672961 (1+1) = (1.820672961 ) (1/10) (1+1) = 1.06175226 Interest rate. I = 1.06175226 - 1 = 0.06175226 = 6.175226 % = 6.18 % (Rounded) Ans: 6.18 %